What Makes a High-Quality Carbon Offset?

Additionality

GHG reductions are additional if they would not have occurred in the absence of a market for offset credits. If the reductions would have happened anyway – i.e., without any prospect for project owners to sell carbon offset credits – then they are not additional. Additionality is essential for the quality of carbon offset credits – if their associated GHG reductions are not additional, then purchasing offset credits in lieu of reducing your own emissions will make climate change worse.

Evaluating whether GHG reductions are additional can be deceptively difficult. The challenge is that GHG-reducing activities occur all the time.[1] Sometimes this is because the activities are required by law. Landfill operators in California, for example, are required to install equipment that captures and destroys methane. In other cases, investments that reduce emissions are made simply because they are profitable, without any consideration of carbon offset credits. An investment in energy-saving lighting, for example, can pay for itself through avoided energy costs. Similarly, renewable energy technologies, like wind and solar, are increasingly cost competitive with fossil fuels, without revenue from carbon offset sales. For an activity or project to be additional, the possibility to sell carbon offset credits must play a decisive (“make or break”) role in the decision to implement it.

Additionality is a topic about which there is frequent misunderstanding. One commonly heard claim, for example, is that a project can be considered additional if GHG emissions are lower than they would have been “in the absence of the project.” This is incorrect. If a project would have been pursued without the sale of carbon offset credits, it is not additional, even if it reduces emissions below what they would have been in the project’s absence. It is also common to hear discussion of different “kinds” of additionality, using terms like “financial additionality” or “regulatory additionality,” as if these are distinct concepts. In fact, the only definition of additionality relevant to offset quality is the one presented here. Legal and financial considerations come into play when making determinations about additionality, but are not separate benchmarks for what it means for GHG reductions to be “additional.”

Furthermore, while additionality is the most essential ingredient of carbon offset quality, its determination is subjective. Additionality is frequently talked about in binary terms: a GHG reduction is either additional or it is not. In practice, however, determining whether an activity is additional requires comparing it to a scenario without revenue from the sale of carbon offsets. Such a scenario is inherently unknowable, and must be determined using educated predictions (such as about future fuel, timber, or electricity prices). The determination can also fall prey to “information asymmetry”: only a project developer can say whether the prospect of selling carbon offset credits was truly decisive, but regardless of the truth, every project developer has an incentive to argue that it was. In light of these uncertainties, it best to think of additionality in terms of risk: how likely is a project to be additional?

 

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[1] Again, see Trexler (2019).